How frustrating is Brexit? The property context

Canary Wharf v European Medicines Agency

In a fascinating case which has been before the Courts this week, the thorny issue of Brexit has again reared its head, this time within the property context.

The history of the case goes back over 100 years. In 1902, a Mr Krell agreed to rent a room in London’s Pall Mall, from a Mr Henry, in order to watch the coronation of King Edward VII. However, the poor King fell ill and the procession was duly cancelled. In what was a landmark case, Mr Krell successfully argued for the first time that a contract had been frustrated, on the grounds that an implied condition of the contract was that the King would be present at his coronation procession. As a result, Mr Krell was not liable to pay any rent.

In the most recent case, the European Medicines Agency (EMA) is relying on similar frustration arguments in order to break a 25 year lease since the EMA is moving to Amsterdam, post Brexit.

The Court must decide whether the UK leaving the EU frustrates the contract to such an extent that the EMA can no longer do business in a way that it was implied when the contract was signed just a few years ago.

If the Court finds for the EMA, this will obviously have huge repercussions for the entire UK real estate market, particularly given the ongoing uncertainties regarding Brexit and how this eventually unfolds before our eyes.

In the present case, Canary Wharf is itself seeking a declaration that Brexit does not count as frustration. Given the international nature of the businesses situated at Canary Wharf, it is clear that Canary Wharf wishes to avoid other tenants making similar arguments concerning Brexit and frustration.

It appears unlikely that the EMA can succeed in resisting Canary Wharf’s arguments, particularly because frustration usually only applies in instances where something completely unforeseeable has affected the agreement. No doubt Canary Wharf will argue that in the time leading up to the EMA signing its lease in 2014, Brexit was in fact highly foreseeable.

In addition, the EMA obviously has other offices available within Europe and can retain the Canary Wharf office at the same time. In practice it will be very difficult for the EMA to show that it can only operate from an EU country.

For the EMA’s part, it is seeking to escape a potential rental liability exceeding £500 million since the lease runs for another 20 years. Whatever the outcome, it remains to be seen just how frustrating Brexit will be for the property world. Watch this space as we will be reporting back on the court’s judgment in due course.

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